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Three Forces Driving Med Tech To Be End-to-End Solution Providers

Three Forces Driving Med Tech To Be End-to-End Solution Providers

Unless your job involves orthopedic devices, you might have glossed over this year’s exciting news: as of April 1, 2016, the Comprehensive Care for Joint Replacement Model (CJR) is mandatory for 791 hospitals in 67 geographic areas of the United States. The headline may not have been very catchy, but really everyone in our industry should be paying attention to this first wave of emerging healthcare payment schemes. The Centers for Medicaid & Medicare Services (CMS) implemented the CJR to better manage its >$7 billion cost for the 400,000 annual hip and knee replacements performed on its beneficiaries, so CJR hospitals are now paid a capitated sum for the entire 90-day episode of care.  It will not be long before CMS bundles payment for other procedures as well (cardiac care, e.g. heart attacks and bypass surgery, is next on the docket).

This payment model shift is not just putting pressure on healthcare providers; medical device manufacturers are being asked to help customers achieve value-based care goals, too. The response by orthopedics companies is evident – they clearly got the memo that gadgets are out, solutions are in. Just as quickly as CJR was announced, Zimmer Biomet launched Signature Solutions, an array of value-enhancing services for joint replacement care, including surgical planning, patient engagement, and data analytics. Stryker saw the handwriting on the wall early, offering similar capabilities under their Performance Solutions program since 2009. Other big device companies are also planting the solution flag, such as Medtronic which since 2013 has acquired a diabetes management company and entered the cardiac care services business.  Incidentally, Medtronic also aims to compete for CJR dollars with their purchase of the low-cost implant maker Responsive Orthopedics.

This shift toward med tech offering end-to-end solutions is being driven by three powerful forces in the healthcare ecosystem that are only going to gain steam in the future:

Provider Financial Pressure

For the last decade or more, the mantra of healthcare reform has been the “triple aim” – improving the experience of care, improving the health of populations, and reducing per capita healthcare costs.  This drive is slowly bearing some fruit, and providers are expected to continue carrying the costs and risks of the value-based care mandate. This is all relatively new territory for providers, who are just starting to figure out how to calculate their costs and measure outcomes. As a result, they are scrambling to find somebody (anybody!) willing to step up and shoulder some of the burden, or at least help them understand the risks they are taking on and how they might be mitigated. Long used to selling into hospitals subject to capitated payment, and gaining ever more share of providers’ wallets through consolidation, large medical device companies are in a unique position to lend a hand.  A first step for med tech can be advising customers on how to reap the most value from products they've purchased from them. As Medtronic’s CEO Omar Ishrak put it, “…the appropriate application of technology can not only address inefficiencies in healthcare delivery but potentially drive inflection points in value creation.

Data Deluge

Whether you call it “big data” or some other buzzword, both health systems and medical devices are generating lots more of it every year. Providers need some way to make sense of all this information and harness it to measure and improve their performance on care delivery and cost.  Data integration and analytics support is where medical device companies can really shine as solution partners to their customers. As the med tech industry embraces this role, it will also become ever more entangled in clinical decision making; eventually lots of regulatory, legal and ethical boundaries will need to be reconsidered to truly realize the value of the data. New models for using clinical data to evolve toward best care will be needed to replace the gold standard approach of randomized, controlled trials. In this new model of data-driven care, medical devices could become the central hubs, driving not just procedural practices but entire care pathways. Data will also form the backbone of true risk-sharing models where payment for medical devices is tied to performance on value-based metrics.

Empowered Patients

Whether pushed by growing financial responsibility for care, or pulled by enabling digital health technologies, patients have an increasingly large role in their healthcare. In addition, payers and regulators are measuring providers on patient satisfaction and other patient-reported metrics. As with other types of risk they’ve assumed, providers are looking for allies in their effort to make and keep their patients happy. To help their customers, and also cleverly differentiate their products with means other than price, device companies are learning new ways to interact and communicate with their patient customers – a group traditionally understood in terms of anatomy, biology and physiology. Engaging patients in their own care is critical for good outcomes, and good outcomes are critical to hospitals and device companies alike, particularly in a bundled payment world. To this end, Stryker recently introduced its new web-based JointCOACH platform, which enables two-way communication between patients and care teams about things like pre-op prep, pain control, and rehab during the 90-day CJR period.

The success of the major med tech companies will increasingly hinge on their ability to demonstrate and deliver value to their customers, either by improving care or reducing costs, and hopefully both simultaneously(!). With bundled payments like the CJR emerging, the stakes are getting real now, so the choice is becoming clear – either be the solution or prepare to be commoditized, with all that entails. Medical devices are already a bargain compared to many drugs, but the bargain aisle isn’t the only place we want to live.

Abbott + St. Jude: What Does it Mean for Med Tech Innovators?

Abbott + St. Jude: What Does it Mean for Med Tech Innovators?

We awoke yesterday to news of yet another med tech mega-merger, with acquisitive Abbott ponying up $25B for St. Jude Medical, even before the ink is dry on Abbott’s $6B takeover of Alere (though that deal may be on the rocks). Fair to say that consolidation in med tech is firmly a trend, with this deal following a string of other big fat $1B+ global weddings:

Deal Area Deal Value Year
Medtronic+Covidien Various $50B 2015
Abbott+St. Jude Cardiovascular $25B 2016
Zimmer+Biomet Orthopedics $13B 2014
BD+CareFusion Patient Care $12.2B 2014
St. Jude+Thoratec Cardiovascular $3.4B 2015
Wright-Tournier Orthopedics $3.3B 2014
Stryker+Sage Products Patient Care $2.8B 2016
Hill-Rom+Welch Allyn Patient Care $2.0B 2015
Cardinal+Cordis (JNJ) Cardiovascular $1.9B 2015
Smith & Nephew+Arthrocare Orthopedics $1.7B 2014
Boston Scientific+AMS Urology $1.6B 2015

The rationale behind these mergers is well understood; med tech is under intense price pressure from health system all over the world, and increased scale helps both the sides of these companies’ ledgers by lowering operating costs and enhancing negotiation leverage with customers.  Then of course there are other incentives like tax inversions, though that window may be closing (see failed “Pfizergan” deal). 

In the press releases announcing these deals, there is often lip service paid to the positive impact on innovation, the story being that greater scale and efficiencies equal more money to spend on internally and externally developed new technologies. "The combined business will have a powerful pipeline ready to deliver next-generation medical technologies,” says Abbott CEO Miles White.  Omar Ishrak, Medtronic’s CEO, made a similar statement back in 2014: "Medtronic has consistently been the leading innovator and investor in U.S. medtech, and this combination will allow us to accelerate those investments.”

It is too soon to evaluate Medtronic’s follow-through on this promise; they have made a few notable early stage investments since the Covidien acquisition including Lazarus EffectTwelve and Medina Medical. The legitimate concern of emerging med tech executives, though, is the loss of one more potential acquirer out there, which lessens the chance of an earlier and/or richer competitive deal, and therefore makes the fundraising road even rougher than it already is.  In addition, these big acquisitions tend to distract organizations and slow down active discussions for several months or longer as a result of personnel changes, shifting business development strategies, and general chaos. 

While a good number of the large M&A deals have been concentrated in the cardiovascular and orthopedic segments, which have been plagued by large, heavily mature product categories, we should expect to see more consolidation generally given the forces at work in the healthcare market.  Looking across the industry, the number of now seemingly small-ish $1B+ revenue companies is striking (see below chart). In an “eat or be eaten” world, these smaller market players may be hungry for deals to enhance their own valuations; emerging med tech companies should consider casting a wider net in the search for strategic partners.  Ultimately, the established medical device companies cannot merge and synergize their way to top line growth, and will continue to look externally for innovation. 

*Most recent annual filings  Sources: company financial filings,  MDDI Top 100 Medical Device Companies of 2015

*Most recent annual filings

Sources: company financial filings, MDDI Top 100 Medical Device Companies of 2015

 

The Pfizer-Hospira Deal: Do Pharma and Device Companies Need Each Other?

The Pfizer-Hospira Deal: Do Pharma and Device Companies Need Each Other?

Having been at the flag-raising ceremony for Hospira when it spun out of Abbott back in 2004, the news of Pfizer’s acquisition was a bit emotional for me.  I didn’t cry or anything, but I did feel a little sad, and a little proud, and maybe a little hopeful at the end of the day.

The pride part first.  My presence at Hospira on “Spin Day” was a function of the strategy work I was doing with the newly forming entity, trying to create a cohesive plan around the bits and pieces cast off by Abbott – a mishmash of commodity products (e.g. saline bags), mid-tech stuff like drug pumps, and then there was this generic IV drug business.  No matter how we sliced and diced the market opportunity, profit, and growth potential of all these product lines, the IV drug business always came out on top (made me wonder whether Abbott overlooked that one in the spin). So I found myself posing the leading question to Hospira management, “How many more of these drugs could you add, and how fast?”  I am sure many consultants have given Hospira similar advice in the intervening decade, and apparently Hospira got the message, culminating in the recently announced Pfizer takeover.

Now the sadness part.  As someone who makes a livelihood in the device industry, who believes devices are an underestimated part of the solution to our healthcare woes, the transformation of Hospira into more or less a pharma company feels like a declaration of defeat.  Maybe the way to be successful in the device industry is to exit it, or minimize it in your portfolio, and start making drugs.  As a business consultant I have to tip my hat to Hospira’s strategy.  As a medical device professional I can’t help feeling a bit betrayed. 

Finally, the ray of hope.  Hospira didn’t abandoned devices completely on their path to the Pfizer exit; they shut down aging and failing infusion pump product lines and acquired new ones to follow the market out of the hospital and into the home.  While bio-similars are what drove most of Hospira’s valuation, their technology and know-how of drug delivery devices was attractive to Pfizer as well, particularly considering Pfizer’s avalanche of patent expirations.  Devices have the potential to breathe new life into drug IP, and often with far less investment in R&D and time.  The biopharma business may be more profitable and sexier on Wall Street right now, but some devices tucked into the portfolio might be a worthwhile insurance policy for drug companies to consider purchasing. Maybe drug and device companies need each other more than they think.

MedTech M&A Tips from the Front Lines

MedTech M&A Tips from the Front Lines

S2N recently hosted an informal gathering of emerging med tech CEOs, a sort of group therapy session for people suffering from a form of temporary insanity that makes one want to be a healthcare entrepreneur. Two of the participating CEOs, Christopher von Jako, Ph.D. and Edward Kerslake, had sold their companies in 2014 for a combined $500M+. Chris and Ed kicked off a lively discussion of lessons learned from the M&A trail.  Without getting into too much detail (what happens at S2N stays at S2N), the group offered some sharable wisdom on approaching, enduring, and succeeding in the medical device M&A game.

Run a tight ship

Companies that buy emerging med techs are usually quite experienced at due diligence, and know all the rocks to look under for valuation busters.  If you see a strategic exit in your future, pay special attention to regulatory and quality documentation, as well as contracts with customers, distributors, suppliers, and so on.  You may also consider having a litigator ‘attack’ your patents so you can uncover and patch holes in your IP early on. “Everything imaginable will get scrutinized during diligence.”

Always keep your pitch book fresh

Smallco pitch decks tends to get dusted off and revised when management is gearing up for a fundraise. The exit experts recommended keeping that PowerPoint updated at all times, and taking every opportunity to practice delivering the pitch along the way.  “You might not have a lot of time to pull this together when opportunity knocks.”

Build relationships with investment banks

Even if you aren’t in selling mode, it’s good to know the who’s who of investment banks, particularly which i-banks are working with which strategics.  The experts suggested getting an investment bank involved about 6 months before you want to sell.  “A good investment bank will do a lot of work to earn the business, and their involvement can help validate the credibility of your company.”

Have a selling price in mind

While the investment banks are very motivated to do deals, they aren’t necessarily incentivized to get the best price.  Small-co’s should develop and maintain a rigorous pro forma justifying their desired acquisition price; key valuation drivers in the pro forma include revenue growth rates and synergy value for the acquirer.  “It’s best to go in a little high and get talked down.”

Keep the M&A inner circle small

It’s hard enough to run an emerging med tech company – harder still if half the employees are distracted with diligence or rumors of an acquisition.  To protect on-going operations, the experts suggest limiting the number of employees pulled into diligence activities, and keeping interactions with potential buyers low profile, e.g. hosting them at the company only after 6:30pm. “The fewer people that know and are involved, the less chance of a leak and distraction.”

Maintain the momentum

Any successful exit requires a champion (at least one) at the acquiring company who will push for the transaction and make things happen; companies don’t make acquisitions, people do. Identifying and nurturing those advocates is critical, and so is making sure the deal closes on their watch. “A key champion can move on from the company and then you are stuck.”

The meeting wrapped up with someone offering the old axiom, “Companies are bought, not sold.” Honestly not everyone in the room was nodding in vigorous agreement to that one. However, whether you think you have the power to push a sale or not, playing it cool with the strategics can be a wise bet.  “Position your interactions with them as updates, but always stay in touch.”

MDT + COV - Good or Bad for Medtech Innovation?

MDT + COV - Good or Bad for Medtech Innovation?

Let’s be honest – the headlining acquisition of Covidien by Medtronic may go down as the most boring deal of 2014, unless of course you are an international tax accountant. The swirling buzzwords are inversion, offshore cash, G&A, and hospital contracts. Please wake me up when it’s over. Yet it may be the unintended consequences of this deal that are the real story, in particular the implications for med tech innovators. The real story won’t really be known for months or even years, despite Omar Ishrak’s reassuring pronouncements that the merger will “accelerate” investments in R&D.

We at S2N decided an old-fashioned pro-con debate was in order. Question: Is the big fat marriage of MDT and COV good for Innovation? Tim took the Con position and Amy the Pro stance. Here’s blow by blow:

Cash for innovation or cash for shareholders?

Amy: You need a lot of cash to invest in disruptive innovation, and the combined “Medvidien” will be swimming in it. It’s a perfect match for gaining efficiencies in mature product categories to free up cash for real technological advances.

Tim: This deal is a perfect example of how the big companies are throwing in the towel on innovation and focusing on the bottom line. The extra cash will all go back to shareholders, which is great for them but I’m not sure how that helps innovation.

Temporary deal disruption or big investment hiatus?

Tim: Good luck getting anything done with any division of MDT or COV for the next 3 years while management is completely focused on realizing those promised “synergies”. They will have a good, long run of earnings growth that will take pressure off top-line growth for a while.

Amy: Really Tim, do you think they can afford to turn off the growth-oriented deal flow for that long? Sure, there might be a short-term disruption to early stage investments from the distraction of the merger, but pretty quickly they are going to have to put that cash to work to grow sales. Can’t cost cut your way to success forever!

Spawning of new start-ups or lifestyles of the rich and famous?

Amy: Think of all the med-tech superstars who will make big coin on the deal and then be released to the wild. Some of that money and expertise will start finding it’s way back into the emerging med-tech ecosystem.

Tim: Wishful thinking, Amy. Med-tech veterans don’t have a rich history of aggressive angel funding. Mostly likely the deal will help the yacht and island markets more than med tech start-ups.

One less acquirer in the pool or just fatter acquirers?

Tim: The number of big-time med tech acquirers is pretty small as it is, and it just got one smaller. Negotiations with the new entity will be tougher, too, because there will be less deal competition.

Amy: There is so little overlap in the business units of the two companies, except for endovascular, that it really doesn’t change the picture for most emerging med techs. The acquirer just got a bigger wallet.

Helpful scale or focus elsewhere?

Tim: After tax minimization, the other main drivers of this deal are negotiating power with hospitals and scale to sell in emerging markets. That’s where they see their growth coming from in the next couple of years. Innovation is on the back burner.

Amy: Those more effective hospital and emerging markets sales channels will benefit innovative technologies, not just mature ones, and they will need more products to pull through those channels.

The Rise of Robotics in Med Tech

The Rise of Robotics in Med Tech

Robots represent a vision of the future, a vision that inspires two parts amazement and one part fear of being replaced by superior machines. In manufacturing, robots have been deployed since the 1960’s to exceed human precision and productivity. This same potential exists in the provision of healthcare, but to date robots have barely made a dent. Despite the $20B market cap of Intuitive Surgical, less than 2% of worldwide surgeries are performed robotically today, and penetration of this pioneering surgical robotic platform may be peaking.

A robotic invasion could be on the way, though, with a number of forces converging to give robots a boost in the healthcare sector.

Robotic technology is advancing

The current surgical robots essentially take a highly skilled surgeon and “super-humanize” them, with the help of 3-D visualization and enhanced precision through minimally invasive incisions. Intuitive is selling these benefits primarily in urology and gynecology cases, Mako Surgical for knees and hips (implantable hardware included), and Mazor Robotics in spine and ultimately brain procedures. Moving from the OR to the interventional suite, robots promise not just precision but also distancing the clinician from the radiation-emitting fluoroscopy in the procedure room. Hansen MedicalStereotaxis and new entrant Corindus are targeting the vascular and electrophysiology labs with this value proposition.

The really game-changing robots, though, may be cooking in academic labs, taking advantage of ever increasing processing power and communication technologies to truly extend beyond human and even geographic boundaries. The Raven surgical robotic platform, was initially funded by the US Army in pursuit of telerobotic surgery, the concept of a highly trained surgeon in one location performing surgery on a truly remote patient (e.g. in space). Back on earth, the Harvard Biorobotics Lab is leveraging the Raven’s open source software and powerful computing capabilities to enable beating heart cardiac surgery using real-time 3-D ultrasound imaging to guide surgical instruments in tandem with moving heart structures. IBM’s Watson is now training its supercomputing smarts on complex diagnoses and treatment pathways, showing how logarithmic increases in processing power might one day drive not just clinical decisions but the interventions themselves.

Robots will get less expensive

In general, prices fall when production efficiency and competition increase; the robotics field is no exception. Over the next few years, Intuitive will be joined by new robotic surgery entrants starting a few Moore’s Law cycles ahead of da Vinci (see this S2N Blog on price disruption in med tech). Emerging robotic competitors include Titan Medical, audaciously naming its robot after another classical dead genius (Amadeus), and Medrobotics, with a flexible robotic system able to reach places the straight-armed da Vinci can’t access.

As robots fall in price, they will not only gain traction in high-value surgical and interventional procedures but also start performing more mundane healthcare functions. Several efforts are underway to develop “personal robotic assistants” or NurseBots, with Asia, motivated by a rapidly aging population in need of care and companionship, leading the charge. Panasonic has been piloting a hairwashing robot for hospitals and nursing homes, complete with 16-finger massage and hairspray application. A robot conceived at the Korea Institute of Robot and Convergence can sniff out soiled diapers and other problem situations is now being deployed in trials at nursing homes.

The data will catch up

Beyond whiz-bang engineering and reasonable price points, what the robotic revolution needs most is a compelling rationale for cash-strapped hospitals and health systems to get on board. So far Intuitive has sold the da Vinci more on sizzle than statistics, ultimately generating robot fatigue, skepticism and counter-data such as the recent JAMA article showing no advantage for robotic hysterectomies. Emerging competitors and Intuitive itself appear to be getting the message, investing more in controlled clinical and pharmaco-economic trials to support capital acquisition and utilization.

For the right technologies and applications, backed by sound data, the robotic future in healthcare should be a bright one.

Special thanks to Amanda Bronner our Intern for her super work in researching the next generation of robotic medical technology

Is The Medical Device Industry Ready for Big Data?

Is The Medical Device Industry Ready for Big Data?

Many medical devices generate a ton of data, but until recently this data has largely been left to go into the ether instead of the ethernet. Complexities around HIPAA and liability concerns, among other worries, seem to have frightened device companies out of utilizing this potentially valuable asset, if they even know what to do with it in the first place. But times are a-changin’ and some big device companies are beginning to make noises about putting the power of data to work. In Boston Scientific’s recent presentation at the JP Morgan Healthcare Conferencecompany execs called out the “convergence of devices and informatics” as a market tailwind for its future success (what BSC offering will be riding this tailwind exactly is unspecified).

A glimpse at the emerging “big data” strategies of medical device companies shows their approaches to be falling under five major, though not mutually exclusive, categories:

  • New Revenue Streams: The business models enabling companies to “monetize” their data might include charging hospitals or payers for access to and/or management of the data, or providing services such as post-discharge patient monitoring.

  • Product Improvements: Companies could use data streaming off their devices to guide product enhancements and next gen platforms that deliver better performance, and therefore are more competitive in the marketplace.

  • Outcomes Benefits: Processed data from a medical device might direct physicians, patients or caregivers to take steps that, in turn, increase the “efficacy” of the underlying device. An example is St. Jude’s effort to use data from an implanted cardiac assist device to indicate the need for heart failure medication, now being studied in the LAPTOP-HF trial.

  • Liability Protection: Careful review of data from medical devices for purposes of post-market vigilance can detect device problems quickly before too many devices get out there, limiting the magnitude of any unfortunate recall situation.

  • Operational Efficiency: Medical devices of the future will be able to tell you where they are, or are not, which can greatly streamline inventory management, sales targeting, and compliance with device traceability requirements. Think of Walmart as the role model here!

So why is now the time for medical device companies to start cranking up their data wonks and make something of their repositories?

Companies need something new. Medical device companies are in dire need of some “tailwinds” to combat the many headwinds blowing against the industry. The traditional medical device business model of charging for capital, disposables and maintenance is under increasing scrutiny, particularly as the aging fee-for-service reimbursement framework shifts towards capitated, episode-of-care payment. While all the doom and gloom of late may be a bit exaggerated (every sector goes through cycles), a new reality of growing price pressure and clinical data requirements is emerging. If the established medical device companies can’t figure out how to augment their value propositions and revenues with device data & analytics, some scrappy new competitor will get the job done!

Providers could use some help. With hospitals and health systems increasingly on the hook for patients between acute care visits, care providers will be desperately looking for ways to keep patients healthy and out of the hospital. Implanted devices could get drafted into overtime duty, reporting back to clinicians on device performance and patient status, potentially over the entire lifecycle of a disease. Electronic health records, which thanks to a variety government carrots and sticks, are finally becoming entrenched in the US, will enable this vision to be realized. There is speculation that the EHR Stage 3 Meaningful Use criteria, slated for implementation in 2016, will include the incorporation of the Unique Device Identifier data into the EHR, opening the door to creative combining of patient and device data for improved outcomes (and comparative effectiveness research, by the way).

Consumers are taking interest. The old days of patients relying solely on their doctors for assessments of their medical conditions and selection of treatment options are over. We now live in a land where just about every patient “Googles” her disease and comes armed with opinions to her doctors appointments. Smartphone “health apps” are cropping up everywhere, with more ways to measure one’s own health status than frankly any of us might want (though I admit to having a scale that connects to the cloud). Some consumers are demanding access to the data coming off of their implanted devices, stirring up controversy on the application of HIPAA to a patient’s own data.

With the combined force of industry push, and provider and patient pull, a path to beneficial use of the mounting heaps of data from medical devices will be carved. The hurdles of safety, privacy and liability will get figured out much as they do in every other economic sector that stands to gain from data analytics, which is just about all of them.

Election Lesson for Emerging Med-Techs - It's All About the Ground Game

Election Lesson for Emerging Med-Techs - It's All About the Ground Game

In the wee hours of Wednesday morning, after watching the predictably gracious speeches and un-transfixing myself from the ice rink, computer maps, and increasingly extemporaneous newscasters, a thought crossed my mind. A nerdy thought (sorry, not a Scott Brown fantasy or nascent plan to run for President): med-tech entrepreneurs can learn something from Mitt Romney’s public drubbing at the polls. How exactly did Obama pull off a re-election given the rough shape of the economy during his term? Many attribute Obama victory to his formidable ground game, a painstakingly built and vast support network that got people excited and out to vote. This seemingly old-fashioned tactic, combined with some high-tech media and math, is a winning one in politics, and works for emerging medical technology companies, too.

Here’s how med-tech entrepreneurs can deploy a successful ground game to beat the odds and achieve success (and let’s just say Romney’s odds were quite a bit better):

Start your ground game early
One of few unifying beliefs in our country is that the presidential election season is way too long. For the candidates, it’s even longer. If you are launching a new med-tech company, you have to plant lots of little seeds very early with researchers, clinicians, professional societies, patient advocacy groups, investors, possible future hires, potential strategic partners and the like. Not all will blossom into productive relationships, and you don’t want to pester people too much if there’s nothing new and exciting to tell. But you can’t pull these crucial contacts out of a hat just when you are in dire need of them, and keep in mind that one is much more charming when not in a state of dire need.

Build a diverse grassroots coalition
When creating a base of supporters, it is tempting to go exclusively for the “money” targets, in politics the rich and famous and in med-tech the mighty “KOLs” who are editors of this and past-presidents of that. The scientific glitterati lend credibility for fundraising, business development and a host of other important things. When you actually need to get stuff done, though, like clinical studies, publications and peer-to-peer education, it’s good to have on board some up-and-comers who appreciate the opportunity and don’t mind knocking on a few doors. You also want to spread the love around to different institutions and geographies. If you happen to be located in the Boston area, proceed immediately to Logan Airport and book a flight to somewhere more normal (speaking to both entrepreneurs and politicians on this point).

Engage powerful surrogates
The best case you will ever make for your technology is one that someone else makes for you. Emerging med-tech companies need a handful of Bill Clintons out there stumping for them, particularly when attempting to convince hospitals, regulators and payors of the safety and efficacy of their nifty new technologies. The credibility of an expert who has used your gadget in real patients and has declared it essential, or at least useful and not scary, is hard to top.

Become a data junkie
No ground game can be successful without a constant finger on the pulse of constituent sentiment. We may mock the constant polls and baseball-like obsession with statistics in politics, but knowing whom you can move and how you can move them is invaluable to a campaign. For emerging med-tech companies, understanding where your technology can gain early votes and eventual bigger wins is crucial data for management teams trying to allocate scarce capital and focus the ground game. Expensive pollsters are not required; just go on a lot of “listening tours” and make sure that good intel finds it’s way back to the product development marketing and sales plans.

Don’t skimp on team swag
There’s nothing like custom embossed t-shirts, fleeces and hats to solidify the loyalty of your ground operation. We at S2N certainly appreciate the cozy free gear!  Just remember not to run afoul of Advamed guidelines

The Next Big Niche? Emerging Med-Tech in Transplant

The Next Big Niche? Emerging Med-Tech in Transplant

As an advisor to emerging med tech companies, I am always on the lookout for attractive niche markets where new technologies might get a foothold and demonstrate their value before taking on the (often mythical) billion-dollar opportunity. To this end, for years I have instinctively gravitated toward the transplant market (the solid organ kind, e.g. kidneys, livers, hearts, pancreases, etc…) as a nifty space for novel medical devices and diagnostics. It’s not a very big market, with only 28,000 solid organ transplants per year in the US (as compared to 600,000 hernia repairs) and 100,000 worldwide. The national system for managing transplants is complex and political (a proposed rule to allocate the best kidneys to the patients with the highest life expectancy made headlines this month). And I’ve heard tales of woe about the challenges of studying interventions in this small, unpredictable and highly regulated specialty.

So why do I like organ transplantation as a target for innovation?

Though I don’t usually let data get in the way of a good hypothesis, I confess that lately I’ve longed for a little validation of my fondness for the transplant market. The recent acquisition by Thermo Fisher of One Lambda, which has a diagnostic for tissue compatibility in transplant, for $925M in cash was somewhat confirming, but being a marketing professional I needed the scoop from the front lines. So on a recent visit to my hometown of Cleveland, I visited with renown Cleveland Clinic hepatobilliary transplants surgeons Dr. John Fung and Dr. Bijan Eghtesad (from here on out “the surgeons”). Over a cup of coffee at the Au Bon Pain, the surgeons administered a dose of reality about the challenges in transplantation, and some inspiration for med-tech innovators with transplant-relevant technologies.

According to the surgeons, organ availability is “the bottleneck” in transplant; there are currently 73,660 people in the US on the active waiting list for solid organ transplantation (compare this number to the 28K who got one last year). The lack of organ supply means that patient who might benefit greatly from a solid organ transplant, for example cancer patients, are not considered candidates. The surgeons listed a number of initiatives, many involving policy vs. technology, to improve the supply of organs, including greater use of living donors. Once just for kidneys (since people conveniently have two), a more recent innovation is the use of partial livers from live donors (4% of liver transplants in 2011). “Although the number of living donor transplants is increasing, this has its own limits,” said the surgeons.

Improving the function of organs available for donation would also help supply. “8-9000 people in the US consent to donate livers each year, and only get 6000 get transplanted; that means we are throwing more than 2000 livers away,” lamented the surgeons. New technologies for maintaining organ function after harvesting, such as Transmedics’ Organ Care System (beginning to replace the “ice bucket” in Europe for hearts and lungs), have the potential to increase organ availability by enabling donor organs to withstand longer transport. Further off, “maybe in 10-15 years,” according to the surgeons, we might see the repair of currently rejected organs using functioning cells (check out this New York Times article about growing organs in the lab).

Keeping patients awaiting transplant alive longer is another area for innovation. Dialysis can keep patients in kidney failure alive for years, but for liver failure and newly transplanted livers needing time to settle in and function, “there is not much we can do,” explained the surgeons. One company, Vital Therapies, is developing a “bio-artificial liver” to temporarily support liver function; the system is still in clinical trials. For heart transplant patients, Heartware’s miniaturized ventricular assist device for bridge-to-transplant is expected to gain FDA approval any day now.

Monitoring and maintaining the health of patients running around with transplanted organs is also a hot target for innovation. Molecular diagnostics companies such as XDx are developing tests for non-invasively detecting early signs of transplant rejection, and predictive biomarkers for rejection predisposition are being pursued for personalized immunosuppressive therapy. On the bio-behavioral end of the spectrum, companies such as iReminder are developing novel medication adherence programs targeted to transplant patients and showing reduction in rejection episodes.

After my little journalistic exploration, I still like the transplant opportunity for emerging med-tech. And I checked the back of my driver’s license (yes, I’m an organ donor, and I hope you are, too). Drs. Fung and Eghtesad certainly confirmed my high-value theory; my attempt to get one “miracle story” out of them drew puzzled looks. They are all miracle stories.

For More data on Solid Organ Transplants (and there is a ton of it), visit:

  • The Scientific Registry of Transplant Patients http://srtr.org/

  • The United Network for Organ sharing http://www.unos.org/

  • American Society of Transplantation http://www.a-s-t.org/content/resources-transplant-patients

  • American Society of Transplant Surgeons http://www.asts.org/

The Three Greatest Pivots in Medtech

The Three Greatest Pivots in Medtech

For medtech-ers taking cues from the internet startup world, a noteworthy new philosophy has crept into the lexicon of new web ventures: The Lean Start-Up. The basic tenant of this methodology, coined by Eric Ries, is that a startup is just a conglomeration of hypotheses,and job one of any startup is verifying these hypotheses as quickly as possible yet with a disciplined approach. For web products, this entails rapidly building a “minimum viable product” and testing it with real customers. Based on the results of these mini market experiments, the company can tweak the product or pivot, a.k.a. change course altogether.

While this works in the fast-paced web world, it is much more challenging to build a “minimum viable” medical device and test it on actual customers (we use animals or employees for that). Despite this reality, medical device startups should be constantly and rigorously testing their assumptions as early as possible, and not only the product-related ones, but also the business model, competitive positioning, and the like. In fact, the backstories of some quite admirable med-tech start-ups reveal surprisingly bold “pivots” that, while presumably painful at the time, ultimately led to success.

3. Conceptus

Probably my favorite pivot of all time. Conceptus was originally founded on (and named after) the idea of enabling conception by opening blocked fallopian tubes with a novel catheter technology. What they found during early testing was that their catheters easily accessed the fallopian tubes, but alas… the technology was much better at blocking the fallopian tubes than propping them open. Problem. Instead of going back to the drawing board on fertility treatment, though, they pivoted 180 degrees to focus instead on minimally invasive sterilization. Fast forward to the present (admittedly 15+ years post-pivot), and the company is pulling in $100M in annual revenue on their Essure female sterilization product with a healthy $600M market capitalization.

2. Ardian

In 2011, Medtronic paid a whopping $800M for the venture-backed, pre-revenue medical device company Ardian, the ink barely dry on the CE mark for Ardian’s minimally invasive renal denervation technology. While this novel treatment for severe hypertension fetched big bucks on the promise of a whole new lucrative vertical for Medtronic, it’s worth nothing that hypertension was not the problem that the company initially set out to solve. Originally, the clinical target was fluid overload resulting from heart failure, and the technology platform was neuromodulation vs. the current RF approach. A big pivot occurred somewhere around Series B, reportedly as a result of both technical and market challenges with the initial vision.

Wisdom from Ardian co-founder Howard Levin: One of the hardest things is knowing when to switch or modify an approach. You want to stay in there long enough to know if it’s right or wrong, but you also want to be flexible enough to change when change is warranted.

1. Intuitive Surgical

Now probably the hottest medical device company on the planet, back in 2000 Intuitive Surgical launched its da Vinci robot with 3-D sites set on an application that even today does not on appear on the robotic menu – cardiac procedures.

From Intuitive Surgical’s 2001 10-K: “We will place significant emphasis on marketing the da Vinci Surgical System to leading surgeons who are considered to be the “thought leaders” in their institutions and fields. These surgeons typically perform complex surgical procedures that are currently not adaptable to MIStechniques. For example, cardiac procedures, of which over one million are currently performed annually worldwide, are among the most difficult to perform using MIS techniques.”

Intuitive did not find the expected market traction in cardiac procedures, nor in general surgery where it went next, but finally found a home below the belt with prostatectomies and hysterectomies. (Side note: a lot of key regulatory and clinical decision-makers happen to be in the prostate-concerned demographic, a potential plus for technologies in this field.)

In the real world, successful start-ups rarely achieve success along a linear path. They pursue their vision aggressively, struggle, learn from early failures and mistakes, pivot, and ultimately get somewhere good. This makes me understand why investors are so focused on the start-up teams, not just the great technology and market story.